BIS report on BASEL III: Long-term impact on economic performance and fluctuations
23 February 2011
The conclusions of the BIS report include that the Basel III reform should dampen output volatility; the magnitude of the effect is heterogeneous across models; the median effect is modest.
The BIS report assess the long-term economic impact of the new regulatory standards (the Basel III reform), answering the following questions.
(1) What is the impact of the reform on long-term economic performance?
(2) What is the impact of the reform on economic fluctuations?
(3) What is the impact of the adoption of countercyclical capital buffers on economic fluctuations?
The main results are the following:
(1) Each percentage point increase in the capital ratio causes a median 0.09 per cent decline in the level of steady state output, relative to the baseline. The impact of the new liquidity regulation is of a similar order of magnitude, at 0.08 per cent. This paper does not estimate the benefits of the new regulation in terms of reduced frequency and severity of financial crisis, analysed in BCBS.
(2) The reform should dampen output volatility; the magnitude of the effect is heterogeneous across models; the median effect is modest.
(3) The adoption of countercyclical capital buffers could have a more sizeable dampening effect on output volatility.
© BIS - Bank for International Settlements
